Article excerpt

WHETHER real estate markets are up or down, the buyer with cash
can almost always call the shots. Today real estate investment
trusts (REITs) have the cash.

In a recession-pummeled, debt-loaded real estate market, these
publicly traded real estate companies are finding wide-open
investment opportunities to add to their portfolios of properties.

"The REIT market is going to be very active in 1993," says
Stanley Perla, a partner with the accounting firm Ernst & Young in
New York. REITs are producing "an initial return somewhere between
7.5 and 9 percent, depending on the type of REIT and the management
and operating history.... Compare that to a 3 percent certificate
of deposit."

From $9.5 billion in 1985, REITs have grown into a $50 billion
industry today.

"We easily have the ability to grow five times our current
size," says Mark Decker, president of the National Association of
Real Estate Investment Trusts in Washington.
Big returns forecast

"The larger REITs with consistent records of cash flow and
dividend growth have had access to the equity markets," says Elaine
Derso, an analyst with Prudential Securities Inc. in New York. They
have been taking "the cash and doing spread investing - going after
the properties that are in the hands of the foreclosure portfolios
of banks, the Resolution Trust Corporation, limited partnerships
that need to raise money - and buying at yields that are in the 9,
10, and very often 11 percent range."

Kemper Securities Inc. predicts that through 1994 and into '95,
some equity REITs should produce total returns (dividends and
capital gains) of 15 to 20 percent per year.

In 1992, $6.45 billion in capital was raised by REITs through
initial public offerings and secondary offerings. "We're seeing the
evolution of a much more stable real estate capital-formation
market," Mr. Decker says.

As one of the few ongoing sources of financing in real estate
today, "strong REITs are raising capital at comparatively low cost,
building their portfolios, and growing their cash flow," Decker
says. "This is an excellent environment for buying real estate."

"A hot area has been REITs that invest in apartment houses,"
says Prudential's Derso. "There has been very little construction
since the tax reform act of 1986."

For investors in multifamily housing, "this is not a bad time to
be acquiring well situated apartment units," says Hugh Kelly, an
analyst for Landauer Real Estate Counselors. "A lot of these assets
could be subject to significant appreciation."

A large part of capital formation for real estate before 1986
was driven by the demand for tax shelters. The 1986 tax laws
shifted the motivation away from writeoffs toward investing for
income and growth. …